52,000 Is a Lot of Tax Evaders

It’s received remarkably little attention in the blogosphere but the fan dance of Swiss banking giant UBS continues to unfold:

One day after the Justice Department claimed to have struck a blow against Swiss bank secrecy, it became clear yesterday how limited that blow was and how much a $780 million fraud settlement with Switzerland’s largest bank left unresolved.

On Wednesday, the department announced that the Swiss banking giant UBS would immediately give up the names of an unspecified number of American clients to avoid prosecution on charges that it helped them use secret accounts to evade U.S. taxes.

“The veil of secrecy has been pulled aside,” John A. DiCicco, acting assistant attorney general of the Justice Department’s tax division, said in a Wednesday news release.

Yesterday, the Swiss president told reporters in Switzerland that UBS had given the U.S. government the identities of up to 300 clients — a small fraction of the information the Justice Department and Internal Revenue Service have been seeking.

The IRS underscored the enormous gap yesterday in a fresh lawsuit alleging that as many as 52,000 U.S. taxpayers used secret accounts at UBS to hide money from the tax agency. That number was more than double previous estimates, including a figure of 19,000 that a Senate investigative panel last year reported getting from UBS.

As you can imagine, the Swiss aren’t happy about this. The secrecy of their account holders is one of their most zealously-guarded assets, protected by Swiss law, and they want to hold onto that asset:

ZURICH, Feb 21 (Reuters) – The right-wing Swiss People’s Party (SVP) called on Saturday for retaliation against the United States over a U.S. tax probe into the country’s biggest bank UBS that threatens prized banking secrecy.

The populist SVP, the country’s biggest party, said Switzerland should not take in any detainees from the U.S. prison for terrorism suspects at Guantanamo Bay in Cuba, which the Swiss government said last month it could consider to help shut the camp down.

Switzerland should also reconsider its policy of representing the United States in countries where it has no diplomatic presence, the parliamentary SVP said in a statement.

The SVP said gold stored by the Swiss National Bank in the United States should be repatriated and Switzerland should ban the sale of U.S. funds in the country to protect Swiss investors after the failure of U.S. regulators.

Other than gestures like this it’s unclear to me what recourse the Swiss actually have. These were American citizens living in America and acting through bank branches located in the United States. Under the circumstances Swiss law is irrelevant.

This morning UBS company officers denied they knew anything about the tax fraud:

UBS (UBSN.VX: Quote, Profile, Research) (UBS.N: Quote, Profile, Research) denied on Sunday its chairman or chief executive were aware of tax fraud by its U.S. offshore business, which forced the Swiss bank to pay a fine to settle charges it helped rich Americans dodge tax.

A UBS spokesman rejected reports in Swiss newspapers on Sunday that suggested that Chairman Peter Kurer and CEO Marcel Rohner had been aware of illegal offshore structures, saying neither U.S. nor Swiss authorities were accusing them of this.

“The assertion that Mr Kurer or Mr Rohner knew about tax fraud via offshore structures is false,” he said in a statement, noting that the Swiss financial regulator had concluded that top UBS management had no knowledge of fraudulent business.

It may or may not be significant but tax evasion isn’t a crime in Switzerland. It’s just barely possible that UBS’s officers may have known about the actions without being aware that they were against U. S. law.

I’m surprised this isn’t receiving more attention because this is the sort of thing that could bring down a government. Our government, I mean. The question is who are these 52,000 people whose names the Feds wish to disclose? Are they all tax evaders or just depositors? That is, is this just a fishing expedition?

But consider this scenario. Imagine that the names of Barack Obama, Harry Reid, Nancy Pelosi, Hillary Clinton, and Howard Dean are on the list. Or the names of their spouses. I’m not in any way alleging that they are, I’m just pointing out the possibilities.